The first shots were fired last week in the legal battle between the South African Revenue Service (SARS) and the Louis Trichardt-based company Alliance Fuel, with SARS suffering their first setback. The legal battle follows the closure of Alliance Fuel’s two major depots in Louis Trichardt (Limpopo) and Meyerton (Gauteng) by SARS officials on 10 July after a raid.

The allegations

According to information received by the newspaper, the two depots were closed, pending a SARS investigation into the alleged contravention of, among other things, the Customs and Excise Act (Act 91 of 1964) regarding the illicit and/or illegal trade, storage, transport, and mixing or blending of fuel products. According to a whistleblower, the allegations include the moving and selling of illegally mixed diesel all across the country. A further allegation is that the mixing and removal of the A1 marker in the diesel occurred at the Meyerton depot. Oil companies mark their paraffin with a SARS-approved tracer, called the A1 marker. If this marker is detected in diesel fuel above 1 mg/ℓ, then the inference is that the diesel has been illegally adulterated with paraffin. The allegation is that after the marker was removed, tankers transported thousands of litres of mixed or altered fuel to Louis Trichardt on a weekly basis and that Alliance Fuel could have a possible under-declaration of just over R3 billion.

Since the closure of the two depots, Alliance Fuel has appointed TAYFIN Forensic and Investigative Auditors (Tayfin) to challenge SARS’s decision to stop the company from doing business. On Tuesday, 16 July, the company’s cases were to be argued in the High Court in Polokwane and in the High Court in Johannesburg on 17 July. Regarding the 16 July court proceedings, Mr Mahier Tayob of Tayfin said that the Alliance Fuel-versus-SARS cases were indeed heard in the High Court in Polokwane, but that judgement was reserved. He also added that their High Court cases in Johannesburg had been postponed until Friday, 19 July, because of a constrained court roll. The cases were ventilated in the Johannesburg High Court on the said date, but judgement in these cases was also reserved.

Legal action has nothing to do with case's merits

Both High Court cases had nothing to do with the merits of the SARS closure but focused on the validity of the warrants issued and the execution thereof. “Prayer 1 [was for] SARS to release the application(s) that motivated the ex parte orders, which has since become moot considering that SARS capitulated. The entity is still entitled to seek costs against SARS for its initial refusal, which led to the urgent applications in part. Prayer 2 [was to] interdict further searches, considering that the warrant was date and time specific,” said Tayob regarding the nature of their court applications.

Some background

On Thursday, 25 July, the High Court in Polokwane handed down judgment in what many described as a “bloody nose” for SARS. The case relates to the raid and closure of the depot in Louis Trichardt. As background to the case, SARS obtained search warrants from the Louis Trichardt Magistrate’s Court on 3 and 4 July 2024 in terms of the Customs and Excise Act, as well as sections 59 and 60 of the Tax Administration Act (Act 28 of 2011).

SARS executed the warrants on 10 July, conducting a search-and-seizure operation at the Alliance Fuel depot in Louis Trichardt. Various items were seized and detained.

From 11 July, Alliance Fuel's attorney, Mr Aadil Mayet, had made numerous requests to the SARS officials for copies of the ex parte applications used to obtain the warrants. Despite these requests, SARS initially refused to provide the applications, stating that the relevant affidavits had been considered by the court that had issued the warrants.

On 13 July, SARS’s attorneys informed Alliance Fuel that they intended to conduct a further operation at the Alliance Fuel premises on 15 July, despite the warrants’ expressly confining execution to 10 July.

Alliance Fuel then launched an urgent application to the Polokwane High Court on 15 July, seeking an order to compel SARS to furnish them with copies of the ex parte application used to obtain the search warrants, as well as interdictory relief preventing SARS from conducting any further searches or using seized materials, pending the provision of the ex parte application and determination of an application to reconsider the warrants. “Notably, the Respondent [SARS] eventually furnished a copy of the ex parte application a day or two before the hearing of this matter. However, this late provision does not negate the Respondent’s earlier refusal and delay in providing it, necessitating the urgent application,” state the court documents.

Case raises important issues about rights

In judgement, Polokwane High Court Acting Judge Nathi Gaisa said that this matter raised important questions about the proper procedure to be followed when a party such as SARS obtains and executes search warrants and the rights of affected parties to challenge such warrants. “It requires this Court to balance the Respondent’s statutory powers of investigation against the constitutional rights of taxpayers to fair administrative action and access to courts,” said Gaisa.

The critical issues for determination in the case were whether SARS was obliged to furnish Alliance Fuel with copies of the ex parte applications used to obtain the search warrants; whether Alliance Fuel has established grounds for urgent interim interdictory relief, pending provision of the ex parte applications and determination of an application to reconsider the warrants; and whether SARS is entitled to conduct further searches beyond the date specified in the warrants.

Gaisa found that although SARS had initially contended that it was not obliged to provide Alliance Fuel with the ex parte applications since a competent court had issued the warrants after considering the relevant affidavits and information, this contention could not be sustained. “Rule 55(3)(e) of the Magistrates' Courts Rules imposes an explicit and peremptory obligation on the Respondent to serve on the Applicant copies of the ex parte applications and supporting affidavits used to obtain the warrants. This obligation exists independently of the magistrate's consideration of the applications,” said Gaisa. Tayfin stated that this rule aimed to enable a party affected by an ex parte order to exercise its right to challenge that order appropriately. In this case, SARS’s initial refusal to provide the applications frustrated the Applicant's constitutional right of access to courts under section 34 of the Constitution. “It effectively denied the Applicant a fair opportunity to challenge the warrants,” said Gaisa and added that, as an organ of the state, SARS had a higher duty to respect the law, fulfil procedural requirements and tread carefully when dealing with rights. “Its initial stonewalling approach in this matter fell short of this standard,” said Gaisa.

Regarding Alliance Fuel's application for urgent interim relief, the requirements for interim interdictory relief include a prima facie right; a well-grounded apprehension of irreparable harm; balance of convenience favouring the grant of relief; and no other satisfactory remedy.

Gaisa stated that Alliance Fuel had established a clear right to be furnished with the ex parte application papers in terms of Rule 55(3)(e) and that this right was bolstered by its constitutional right of access to courts. “There is a well-grounded apprehension of irreparable harm. The Respondent has already conducted one search operation and has indicated its intention to perform further operations. Without timely access to the ex parte applications, the Applicant could not assess and challenge the lawfulness of these actions appropriately. Each day that passes with the Respondent possessing seized materials potentially used for further investigations compounds the potential prejudice to the Applicant,” said Gaisa.

Gaisa found that the balance of convenience favours granting relief to Alliance Fuel. “If interim relief is granted, the Respondent will merely be prevented from conducting further searches or using seized materials until it complies with its legal obligations and the Applicant can challenge the warrants. The potential prejudice to the Applicant outweighs this temporary limitation on the Respondent’s powers if relief is refused,” Gaisa said, adding that Alliance Fuel also had no other satisfactory remedy available. “It made numerous attempts to obtain the ex parte applications from the Respondent, without success. Court-ordered relief was the only viable option to protect its rights,” said Gaisa.

SARS overplayed their hand

As for the further searches by SARS outside the specified dates on the warrants, Gaisa stated that the search warrants expressly confined execution to 10 July. “Therefore, the Respondent’s intention to conduct further operations on 15 July 2024 is prima facie unlawful,” said Gaisa.

“While the Respondent undoubtedly has broad investigative powers, these must be exercised within the confines of the law and specific court orders. To allow the Respondent to unilaterally extend the operation of a warrant beyond its specified terms would undermine the rule of law and the court's supervisory role over search-and-seizure operations,” said Gaisa.

Evidence may not be used

Gaisa ordered, among other things, that SARS be interdicted from conducting any further searches or seizures at the Alliance Fuel premises in Louis Trichardt under the warrants initially granted; and that SARS be interdicted from using, for any purpose whatsoever, any materials, information, or data seized or obtained during the search conducted on 10 July 2024. SARS was also slapped with a cost order.

Regarding the court order, Gaisa stated that this judgement should not be construed as fettering SARS’s ability to conduct legitimate investigations into tax compliance. Instead, it affirms that such investigations must be performed while following prescribed legal procedures that give effect to constitutional rights.

The judgement, in essence, means that SARS will not be able to use any possible evidence seized, including what was seized on 10 July, as evidence against Alliance Fuel. “I imagine that the court held that the evidence could be contaminated (fruits of a poisoned tree) until the validity of the warrants has been tested. The Court’s displeasure is clearly visible in the judgement, including the granting of a punitive cost order,” said Tayob.

A day after the judgement by Acting Judge Gaisa, SARS filed an application for leave to appeal against the judgement. Apart from applying for leave to appeal, SARS also launched a super-urgent application on 30 July to set aside the Limpopo High Court order. “SARS was again defeated and slapped with another cost order,” said Tayob.

Despite the bloody nose SARS received in court last week, the premises of Alliance Fuel in both Louis Trichardt and Meyerton remained closed this week. This was because SARS had appealed the 25 July High Court order, meaning that the status quo remains as before the judgement. This was confirmed by Tayob. He added that an urgent application has been launched in Johannesburg, scheduled to be heard next week, for Alliance Fuel to be given unrestricted access to its facilities and to resume business.